Bloomberg News

Turkey Yields Rise to 2-Year High After Benchmark Debt Auction

November 15, 2011

Nov. 15 (Bloomberg) -- Turkish bond yields rose to the highest level in more than two years as weak demand from banks for the benchmark debt in an auction today raised the government’s borrowing cost to its highest since July 2009.

Yields on two-year debt increased 29 basis points, or 0.29 percentage point, to 10.54 percent at 2:54 p.m. in Istanbul, a Turk Ekonomi Bankasi index of the securities showed. That’s the highest level since Aug. 3, 2009. The lira fell 0.5 percent to 1.7930 per dollar, weakening for a second day.

The Treasury sold a total net 4.47 billion liras ($2.5 billion) of July 2013 bonds at an average yield of 10.59 percent in an auction and earlier non-competitive sale today, the highest yield since it sold two-year benchmark debt at 11.6 percent on July 14, 2009, according to data on the central bank website. The Treasury sold the July 2013 at 8.32 percent in the first auction of the bond on Oct. 11.

“The demand was very weak,” Burak Ahmet Ustay, assistant general manager at WestLB AG in Istanbul, said in e- mailed comments. “That was because of uncertainty on the level of funding cost for the coming period.”

Banks’ bids totaled 3.38 billion liras in the two-year debt auction, after a net 2.27 billion liras of bids from largest banks in the non-competitive sale. Demand in the non- competitive section was 14.6 billion liras in the Oct. 11 sale. State institutions bought 500 million liras of the benchmark bonds in the non-competitive sale today.

The Treasury in Ankara also sold 718.4 million liras of January 2016 fixed-coupon bonds at 10.35 percent average yield in another auction and earlier non-competitive sale. Public institutions bought 300 million liras of the 2016 bonds. Banks’ bids in the auction were 377 million liras.

Turkish yields climbed the most since 2008 last month after the central bank more than doubled borrowing costs for lenders to tackle inflation and shore up the lira. The bank has pushed up borrowing costs by denying banks access to funding at the benchmark one-week repo rate of 5.75 percent on some days and instead providing it only through the overnight lending rate, at a cost of as much as 12.5 percent.

“Banks are reflecting the central bank’s uncertain policies on yields in auctions,” Murat Yardimci, head of trading at ING Bank AS, said in e-mailed comments. “This is something we have not seen in a long time.”

The Treasury aims to raise 12.2 billion liras in five auctions, against a domestic debt service of 13.4 billion liras this month, according to the borrowing program it announced Oct. 31. It raised 7.73 billion liras in four auctions yesterday and today, including 1.8 billion liras it got from state institutions. It will hold another auction for January 2018 floating rate notes on Nov. 22.

“It is clear that banks were hesitant to lend the Treasury, but the Treasury’s cash position is strong at around 10 billion liras, which could cover the remaining part very comfortably,” Ozgur Altug, chief economist at BGC Partners in Istanbul, said in e-mailed comments. “The Treasury is almost done with its annual domestic debt redemption. There won’t be a sizeable redemption in the rest of the year.”

--Editors: Aydan Eksin, Steve Bryant

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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